10 housing markets to watch in 2015

The housing market recovery is expected to limp along in 2015, but new research suggests that some markets are expected to do better than others.

The rebound in property prices drove the recovery after the bust, but that’s now fading as price growth slows, says Jed Kolko, chief economist at real estate website Trulia. “Prices are no longer significantly undervalued and investor demand is falling,” he says. “Ideally, strong economic and demographic fundamentals like job growth and household formation would take up the slack. But the virtuous cycle of gains in jobs and housing is relatively weak, and that will slow the recovery in 2015.”

Trulia identified 10 markets to watch next year, based on solid job growth, which fuels housing demand, and a low vacancy rate, which spurs construction. “We gave a few extra points to markets with a higher share of millennials,” Kolko says. (That roughly includes those ages 18 to 30.) “These young adults are getting back to work and that will drive household formation and rental demand.” Boston was No. 1, followed by Dallas, Texas, Fresno, Calif., Middlesex County, Mass., and Nashville, Tenn.

Most Americans are optimistic about the housing market. Some 74% of respondents agreed that homeownership was part of achieving their personal American Dream — the same level as this time last year, according to a survey of more than 2,000 adults carried out by Trulia last month. “For young adults, the dream has revived,” Kolko says. Some 78% of 18-34 year-olds said homeownership is still part of the American dream, up from 73% this time last year and a low of 65% in the third quarter of 2011.

Despite such optimism, homeownership is still a challenge for many Americans. Saving for a down payment is still the highest hurdle, followed by poor credit and qualifying for a mortgage. But unemployment among U.S. adults surveyed has become less of a problem, falling to 24% this year compared with 36% last year. But the rebound in housing prices has made affordability a bigger problem. Some 32% of respondents cited rising home prices as a barrier to homeownership, versus 22% last year.

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